Umbrella Insurance is a relatively inexpensive way to obtain significant increases in important insurance policy coverage limits for liability. Consumers are familiar with motor vehicle and homeowners insurance policies. They are separate policies covering separate and distinct risks. Each has its own policy limits and premium charge.
Umbrella Insurance is a distinct coverage that is purchased as a standalone package to supplement other, separate policies, such as the motor vehicle and homeowners examples mentioned above.
Example: A motor vehicle policy may provide bodily injury coverage of $10,000 or even $100,000. Separately, the homeowners policy (similar renters insurance is also available) may provide the same coverage limit.
Bodily injury coverage pays for personal injuries and death caused by the insured's negligence. Although $100,000 in coverage is enough in most cases, in some cases it is not nearly enough. Some serious injuries command $1,000,000 and more in damages, while wrongful death damages can reach into the multiple millions. In these cases, the protection afforded by the primary policy is insufficient. This is where umbrella coverage comes into play.
Umbrella Insurance is designed to be available once the limit of the primary policy is exhausted. The advantages of umbrella coverage over simply increasing the limits in the primary policies are twofold: (1) Simplicity. One umbrella package covers multiple policies (in our example, motor vehicle and homeowners); and (2) Cost. The premium on an umbrella policy is less than the premium for the same coverage limit under the primary policy.
The Umbrella Insurance can only exist if there is an underlying policy as excess liability. The Umbrella insurance cannot be placed as the only liability coverage.